Brokers are facing many new challenges that test their ability to trade successfully. Insurance Times carried out a survey in conjunction with Barclays Financial Markets to discover their approach
Service remains the number one reason as to how brokers differentiate themselves from their competitors.
Research conducted by Insurance Times on behalf of Barclays Bank in the fourth quarter of 2005 shows some 94% view this being either critically, or very, important in terms of differentiation.
This was followed by being a market specialist (67%) and price issues (51%).
The factor which mattered least is location with 27% saying this was of no importance.
When asked what factors for major change in the UK broker market will matter most over the next three years, brokers said that "increased focus on improved service" was crucial - some 72% described this as either very, or critically, important.
Least important were "more broker networks and more premium finance solutions."
The biggest challenge facing brokers is regulation, which was in the top slot of our survey at 65%. This was followed by the competitive environment at 45% with access to finance the least important at 5%.
Brokers said they were looking for advice most from the regulator (52%) followed by a better focus on compliance at 45%, lower costs at 37%, while 25% stated they were looking for accessibility.
There is relative negativity about the broker outlook over the next two years.
Almost half (49%) believed it would be less favourable than 2004/05, while some 29% said that they felt it would be much the same.
Achieving strategic ambitions is more likely to be through organic growth with existing products and markets, than by acquisition, according to the survey. It revealed 72% planned organic growth compared to 33% quoting acquisition plans.
The vast majority of brokers plan to address succession planning issues by developing and promoting from within (80%), while 37% said they would recruit externally and 18% said they were positioning the business for a trade sale.
Turning to what are the most valuable products supplied by a bank, client non-statutory trust accounts topped the poll at 48%.
These accounts, brokers said, were either very, or critically, important, overtaking the next highest total of 43% who valued payments and cash management services first.
Foreign exchange and interest rate risk management were viewed as least important.
When asked what they were looking for from their banking partners, there was agreement from brokers that most important was continuity of relationship (75%), understanding of the business (66%) and a partnership at (64%).
Brokers said they were most likely to go to their accountants for advice on capital or risk management issues (70%) followed by their bank at 47%. The least popular choice here was family or friends at 7%.
The survey was first revealed by Des Potter, head of insurance for Barclays Financial Markets.
He said that while regulation and competition had been described as key concerns, he also believed many brokers still had expansion on their minds.
"We have had more requests for finance in the past six months for acquisition purposes than ever before," he said.
Potter explained that brokers needed to prepare their evidence carefully before talking to their bank about borrowing for an acquisition.
Among the information he said a responsible lender would want to know were "details of revenue, insurer relationships, the integration plan, the quality and depth of leadership, business retention levels, who the rainmakers were, underwriting controls and IT investment."
He said that the price of loans was dropping and that disciplined lenders would now want clear evidence of adequate returns.
What the brokers said in the survey
"The FSA's stand on compliance is slowly but surely strangling our industry. We used to be good at broking. Now we spend too much of our time and money sending out unnecessary and unwanted documentation, very little of which is in the public's interest."
"If only we had a regulator that understood the business it is regulating. Computer models are fine in ivory towers, but the real world is down at the sharp end."
"FSA regulation will NOT stop a single rogue broker."
"The level of general insurance regulation must be reduced, as costs currently far outweigh the benefits. Brokers' profits will be hard hit, and added to volume of regulation and cost will be a quickening of consolidation, which may not be in the best interests of consumers. Many brokers feel that the FSA and insurers would be happy to see further significant reduction in broker numbers."
"It is very difficult to trade in a soft market. It erodes client loyalty because underwriters always think only in terms of lower premiums and then the client expects lower premiums. Underwriters always seem surprised when they suffer losses and have to increase premiums sharply, further eroding client loyalty."
"I like my banking relationship to be transparent. We are both in business to make money, but not at each other's expense."
"We have just changed banks to Barclays from NatWest."